Indian Drugmakers Expect Pricing Pressure To Continue In U.S.
Of the six pharma majors, Sun Pharma and Cadila Healthcare were the only two to report operating margins over 20%.
India’s generic drugmakers expect pricing pressures to continue in the U.S., one of their largest markets.
That weighed on their financials in the quarter ended March. Most pharmaceutical firms missed estimates— with only Sun Pharmaceuticals Industries Ltd. and Cadila Healthcare Ltd. witnessing green shoots. The companies, including global generic majors Teva Pharmaceutical Industries Ltd. and Mylan, indicated that they will continue to face challenges in the U.S in the ongoing financial year.
Of the six largest Indian drugmakers, Sun Pharma and Cadila Healthcare were the only two that managed to report operating margins over 20 percent in January-March. All others missed the Bloomberg consensus estimates. Smaller companies such as Granules India Ltd., Strides Shasun Ltd. and Glenmark Pharmaceuticals Ltd. fared much worse.
Here is a synopsis of what the pharma companies said after their earnings:
Sun Pharma
- Guided for low double-digit revenue growth in FY19.
- Some generics becoming unviable; focus on specialty products.
- Will launch Yonsa (cancer), Ilumya (psoriasis) and Seciera (eye inflammation) in the first, second and fourth quarters of this financial year, respectively.
- Halol unit resolution likely in the second half of the year, which may aid revenues.
Cadila Healthcare
- Expect growth in the U.S. business despite high base.
- Margins expected to improve by 100 basis points in FY19.
- Pricing pressure much lower than earlier.
- Around 2 percent price erosion QoQ in the base business.
Cipla
- Healthy double-digit growth in the U.S.
- Above-average market growth in India and South Africa.
- Almost near the bottom with respect to price erosion.
- No mention of price erosion in the U.S. business.
Dr Reddy’s Labs
- Big launches in the U.S. are delayed.
- Recovery in the U.S. likely from from the second half of the year.
- Hopeful of price erosion moderating in the current financial year.
- See high double-digit price erosion this year.
Lupin
- Expect single-digit sales growth in the current financial year.
- Worst of price erosion is behind; expect high single-digit price erosion this year.
- Key launches towards end FY19.
Aurobindo Pharma
- Expects U.S. revenue to grow but did not quantify.
- Looking to grow both injectable and overall sales in FY19 in the U.S.
- Expects pricing erosion to moderate in FY19.
FY19 Outlook
While brokerages tracked by Bloomberg see valuations for these companies staying in the range of 20-25 times their FY19 earnings per share estimates, they expect modest returns.